A poisonous concoction

And, of course, my key measure of the future health of world economy, profits, continue to paint a dismal picture. Corporate profits in the five major economies of the US, Japan, Germany, Eurozone and the UK, are now contracting (on average) for the first time since the Great Recession.

Another disconcerting factor is the world economy could already be growing slower than the official figures show. The IMF estimates that global gross domestic product (GDP) rose about 3.1% in 2015. Yet when the IMF data for world gross national product (GWP), which includes earnings from overseas trading and income, it appears from the IMF’s own figures that the world economy contracted in nominal terms by 5% this year.

This contradictory data was considered in a recent paper. Peter van Bergjik, the author, concluded that some of the divergence between world GDP and GNP could be explained by statistical errors and currency deviations from the dollar’s value. But that would not be enough to fill the gap in the data. Van Bergijk concludes “that the official IMF forecasts for real GPP are likely to be too optimistic as has also been the case in the past. Analysing the IMF’s track record over a 20-year period, the Independent Evaluation Office (2014) reports that real economic growth has been overestimated, especially in periods of global crisis. Further downward revisions of the real economic growth rate are therefore to be expected.”

I have commented on the possibility of a new global recession in previous posts. My view is that it is due and will take place in the next one to three years at most. Some mainstream economists are now forecasting a more than 50% chance for 2016. Citibank economists reckon that there is a 65% chance in 2016.


Maybe it won’t be in 2016. But the factors for a new recession are increasingly in place: falling profitability and profits in the major economies and a rising debt burden for corporations in both mature and emerging economies. And the Fed set to hike the cost of borrowing in dollars. It’s a poisonous concoction.

Michael Roberts Blog

Crude oil prices have hit a seven-year low after last week’s decision in Vienna of OPEC, the oil cartel, not to put any limit on oil production next year.

Oil price

Demand for oil has slowed sharply and oil stocks have built up to a record 3bn barrels while oil container ships circle the waters around refineries in the US and Europe unable to unload because there is no demand.

oil stocks

At the same time, the prices of important raw materials like iron ore and copper hit new lows. The transport of these resources in ‘dry’ container ships has collapses, as measured by the so-called Baltic dry index, now at a 30-year low.

Baltic dry

As a result, the large so-called emerging economies like Russia, Brazil and South Africa, where exports are mainly energy and other raw materials for the industrial and consumer economies of the mature capitalist world, slipped into economic recession, with their…

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